Unfair Competition: What is it?
Unfair competition is essentially a deceptive or wrongful business practice that economically harms either consumers or business entities. At its core, unfair competition is a business tort designed to stop any unfair practices that might be happening in the context of a business setting. Federal and state laws are designed to protect the economic, intellectual, and creative investments made by businesses in distinguishing themselves and their products.
Here we will focus on unfair trade practices which impact businesses and business owners. Consumers who are injured by deceptive trade practices generally seek the remedies provided by consumer protection laws.
Examples of Unfair Competition
Unfair competition is an umbrella term that actually encompasses several different types of economic torts. Examples of unfair competition include:
- Trademark infringement: An example of this would be using the Starbucks® trademark on a sign or coffee cup made by a competing coffee roaster.
- Unauthorized substitution of one brand of goods for another: This can also be known as "bait and switch." Manufacturers of the product used as "bait" can sue the seller on the grounds that the seller used trademarked images of the product for financial gain with no intention to sell them.
- Misappropriation of trade secrets: Such as stealing a fried chicken competitor's "secret recipe" and using to for monetary gain.
- False representation of products or services - Such as making any materially misleading product warranty or guarantee.
- False advertising: For example, making exaggerated claims about the nutritional benefits of a particular yogurt product as opposed to your competitors such as the Dannon Company did with its Activia Yogurt product.
Where Do Unfair Competition Laws Originate?
Unfair competition laws are regulated through a combination of federal and state laws, including court rulings under common law. Taking it back to the United States Constitution, Article 1, Section 8, Clause 3 known as the "Commerce Clause," this section provides the basis for Congress' regulation of unfair competition.
Federal law also protects business owners in the areas of false advertising, copyrights, and trademarks under laws such as §43(a) of the Lanham Act, 15 U.S.C. §1125(a), a law which allows business competitors to privately sue advertisers for false advertising.
States have also enacted laws regulating everything from misappropriation to counterfeit goods. Many states have adopted their own version of the Uniform Trade Secrets Act, which defines and protects trade secrets. The law essentially protects almost any information that gives a business a competitive edge in the same industry.
Courts have a number of tools at their discretion to prevent the practice of unfair competition and to restore money or property to victims of unfair competition. Several states, including California, allows for both monetary damages and injunctive relief where necessary.
Businesses harmed by unfair competition can sue for injunctive relief to restrain the competitor from continuing in the unlawful practice, and/or money damages as a way to compensate for any losses caused by the unlawful practice. These remedies may be available in both state and federal court, depending on the circumstances surrounding the unlawful act.
Damages Award Calculation
Courts take a number of factors into account when deciding a damages award including the:
- Number of violations,
- Nature and seriousness of the misconduct,
- Length of the misconduct,
- Willfulness of the defendant's misconduct, and
- Defendant's assets, liabilities, and net worth.
Legal Help With Unfair Competition Practices
If you are a small business owner and have been accused of unfair competition, or you think another business is violating your rights, you may wish to seek legal help. A business and commercial law attorney will help you wade through this difficult area of law and answer your questions.
For more information, visit FindLaw's Small Business Law section to learn more.
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